What is Alternative Investment Funds(AIF)?

by Farheen Shaikh  |  March 24, 2021

AIF is a privately pooled investment instrument modelled after Mutual Funds where individuals invest in assets in varying markets, including real estate, private equity, hedge funds etc.

These are private funds and face little to no variation because of stock markets (Public Equity), enabling people to diversify beyond the stock markets.

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The first half of 2020 was a heartbreaking moment for investors in the equity markets. The stock market was crashing, and you could see your portfolio worth going down with each passing day. 

It was especially worse for people who had invested all of their money in the assets that swing in line with the stock market. Like Mutual funds, bonds etc. It made many of us realise the importance of diversifying our investments in unrelated buckets so that even if one market is crashing, you have your other assets intact.

Gold and Deposit schemes are widely known diversifying options; however, few people know about Alternate Investment Funds (AIF). There are several AIF options available that can help you invest in varying markets.

Types of Alternative Investment Funds in India

Given Below is the list of best Alternative Investment Funds (AIFs) in 2021 in India:

1. Private Equity

Private equity refers to the capital investment made in non publicly traded companies. These companies include private firms/startups equipped with tech and business competency looking for some funding support.

It requires you to be an investor in an early-stage startup in the capacity of a VC, Angel investor etc., allowing you to acquire an equity stake in the company for the capital you invest. A private equity firm pools capital from investors to form a fund and ties the business and investor together. 

Investors can sometimes also invest in publicly traded companies and take them private.

Investment in private equity can potentially give you way better returns than investing in public equity as some of these companies are brewing with new-age ideas, having the potential for exponential growth.

2. Real Estate (REIT’s)

REIT or Real Estate Investment Trust is an investment fund that owns, manages and operates income-generating real estate. It includes properties like office spaces, housing, hospitals, shopping centres etc.

A REIT fund is where multiple investors can invest in real estate projects without entirely buying them independently. This investment creates a regular inflow of cash for you either through rent or interest earned on the properties.

There are around three types of REIT funds: Equity, Mortgage and Hybrid, which either can be publicly or privately traded. 

An equity fund is where the fund manager of the REIT fund owns and manages the properties. A mortgage fund is where they lend money to real estate owners, and a hybrid fund is a combination of both. Basis on the type of fund, the payouts are made to investors.

3.Collectables and NFT’s

Collectables are anything that you consider to be worth more than their current value a few years down the lane. Back then and even now, people collect currencies, antique decor items, sports cards etc. and preserve them with the expectation that they will multiply in value.

NFT’s are just the digital form of collectables; they are non-fungible tokens that run on the blockchain. These tokens are digital assets representing collectables like Sportscards, Music data, Art etc. Each NFT is unique, and thus means can’t be exchanged nor replicated.

We have been collecting collectables for centuries, and now their digital version (NFT) is also garnering immense popularity.

4. Cryptocurrencies

Another alternative asset class to look at while diversifying into multiple markets are; Cryptocurrencies. They are the new age asset class, growing at a pace never seen before.

Cryptocurrencies have proved to be the fastest-growing and highly profitable asset class over the years. Though they are highly volatile, they are equally promising. Out of all the above mentioned AIF’s, cryptocurrencies require a lot less capital to start with.

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With millions of retail investors investing in cryptocurrencies, institutional investors like GreyScale, MicroStrategy etc., have also leaned into the cryptocurrency market.

The Bottom Line

Diversification is a known trick in the book, but you should not only diversify within the markets but between multiple markets as well to be a step ahead in the game. Having your wealth scattered around different unrelated asset classes will ensure you better returns and higher safety when unforeseen circumstances occur.

KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.


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